ANALYSIS: Paying for gene therapy: are annuities the answer?

Reuters, LOS ANGELES

As US drugmakers face growing resistance to the high price of cutting-edge treatments, a handful of companies are working on a new payment model that rewards them for the long-term performance of their medicines.

The effort, industry executives said, is being led by firms developing so-called gene therapies, which aim to cure inherited diseases like hemophilia by “fixing” the single faulty gene responsible for the disorder.

They include BioMarin Pharmaceutical Inc in San Rafael, California, and Sangamo BioSciences Inc in Richmond, California.

If these new hemophilia drugs and others like them succeed, a one-time infusion could replace the need for frequent, life-long injections of blood clotting proteins that can cost up to US$300,000 a year for a single patient. These existing treatments, including Pfizer Inc’s Xyntha and Baxter International’s Advate, are expected to command annual sales of more than US$11 billion by next year.

Drugmakers contend that a one-time cure, even at a price of more than US$1 million, would save money over the long term, but there are concerns that health insurers will balk at covering that kind of upfront cost.

“The place that we are moving toward is more of a pay-for-performance type of strategy,” Sangamo chief executive officer Edward Lanphier said. Under this model, the price would be amortized over a period of time and contingent on proof that the treatment is effective and safe.

The annuity-like payments would be stopped if medical testing, such as the level of clotting protein measured in a patient’s blood sample, showed that the therapy was not working.

Many barriers remain to implementing such a model, and the drugs for which it is being considered may not reach the market for several more years, if at all. Since Americans often switch health insurers, contracts — or even legislation — would be needed to require payers to pick up the ongoing tab for patients who change their coverage.

However, the interest in new payment models reflects the healthcare industry’s intention to find new ways to bolster profits as insurers push back against drug prices. Some backers of the new model say the payment streams could eventually be packaged and sold to investors, as happens now with securities backed by financial assets like credit card receivables.

“Our approach to this important funding-benefit question is to establish a financing vehicle where the relatively large upfront cost is amortized in conjunction with the benefit of these innovative, curative or preventative therapies,” said Michael Meyers, managing director and head of investment banking at T.R. Winston & Co, which is discussing such funding models with pharmaceutical and biotechnology companies.

Troyen Brennan, chief medical officer at CVS Health Corp, the second-largest US pharmacy benefit manager, is supportive of such efforts.

“Some sort of model where there was a partial payment over time could work well,” Brennan said in an interview.

Gene therapy has been a target of Big Pharma for more than 20 years, but research has been dogged by a series of disappointments and safety concerns. More recent scientific advances have paved the way for the potentially life-changing treatments.

No gene therapies have been approved in the US, but Europe approved its first gene therapy last year. Glybera treats a rare disorder that clogs the blood with fat and has been cleared for reimbursement in Germany at a price of 850,000 euros (US$963,000), or around US$1 million. It will be sold for a one-time payment because it is too difficult to measure how well it works, said Joern Aldag, CEO at Dutch biotech firm UniQure NV, which developed Glybera.